6. Lothbrok Industries is evaluating the following three independent short-term financing arrangements. What is the effective annual cost (%) for each financing alternative? (a) A 30 day loan secured against receivables from First Financial Co. with the following terms: (4 marks) Receivables value based on the 2019 balance sheet. The financing company will lend up to 57.1% of the receivables value 0.25% processing fee (every 30 days) based on the total receivables value Loan rate is 5% annually. You may use the formulas or use a financial calculator. Show all your calculator keystrokes. Total loan value Interest cost for 30 days Total borrowing cost = Effective annual cost (%) = (b) A 90 day inventory loan from Commercial Bank of Ontario with the following terms: (3 marks) Inventory value based on the 2020 balance sheet Loan will be 10% of collateral value Prime rate is 3% annually Field warehouse loan fee of $180 per day Loan rate is 2% over prime 4 Total loan value Interest cost for 90 days Total borrowing cost = Effective annual cost (%) = Lothbrok Industries Ltd. Income Statement (Millions CDN) Revenue Cost Of Goods Sold Gross Profit Selling General & Admin Exp. Depreciation & Amortization. Operating Income Interest Expense Earnings Before Tax Income Tax Expense Net Income 2020 270 154 116 74 11 32 View Menu 6 26 8 18 Per Share Items EPS Common Shares Outstanding (millions) Dividends per Share Payout Ratio % $0.40 44.1 $0.15 36.9% 2019 2020 Lothbrok Industries Ltd. Balance Sheet, (millions CDN) ASSETS Cash And Equivalents Accounts Receivable Inventory Prepaid Exp. Total Current Assets Gross Property. Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment Other Non-operating Assets Total Assets 21 115 3 140 230 (88.3) 142 50 332 21 120 4 145 244 (86) 158 52 355 View Menu 26 LIABILITIES Accounts Payable Accrued Exp Short-term Borrowings Other Current Liabilities Total Current Liabilities Long-Term Debt Other Non-Current Liabilities Total Liabilities 25 8 27 10 71 76 18 165 37 14 76 70 29 176 Total Equity Total Liabilities And Equity 167 332 179 355 MacBook Air 6. Lothbrok Industries is evaluating the following three independent short-term financing arrangements. What is the effective annual cost (%) for each financing alternative? (a) A 30 day loan secured against receivables from First Financial Co. with the following terms: (4 marks) Receivables value based on the 2019 balance sheet. The financing company will lend up to 57.1% of the receivables value 0.25% processing fee (every 30 days) based on the total receivables value Loan rate is 5% annually. You may use the formulas or use a financial calculator. Show all your calculator keystrokes. Total loan value Interest cost for 30 days Total borrowing cost = Effective annual cost (%) = (b) A 90 day inventory loan from Commercial Bank of Ontario with the following terms: (3 marks) Inventory value based on the 2020 balance sheet Loan will be 10% of collateral value Prime rate is 3% annually Field warehouse loan fee of $180 per day Loan rate is 2% over prime 4 Total loan value Interest cost for 90 days Total borrowing cost = Effective annual cost (%) = Lothbrok Industries Ltd. Income Statement (Millions CDN) Revenue Cost Of Goods Sold Gross Profit Selling General & Admin Exp. Depreciation & Amortization. Operating Income Interest Expense Earnings Before Tax Income Tax Expense Net Income 2020 270 154 116 74 11 32 View Menu 6 26 8 18 Per Share Items EPS Common Shares Outstanding (millions) Dividends per Share Payout Ratio % $0.40 44.1 $0.15 36.9% 2019 2020 Lothbrok Industries Ltd. Balance Sheet, (millions CDN) ASSETS Cash And Equivalents Accounts Receivable Inventory Prepaid Exp. Total Current Assets Gross Property. Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment Other Non-operating Assets Total Assets 21 115 3 140 230 (88.3) 142 50 332 21 120 4 145 244 (86) 158 52 355 View Menu 26 LIABILITIES Accounts Payable Accrued Exp Short-term Borrowings Other Current Liabilities Total Current Liabilities Long-Term Debt Other Non-Current Liabilities Total Liabilities 25 8 27 10 71 76 18 165 37 14 76 70 29 176 Total Equity Total Liabilities And Equity 167 332 179 355 MacBook Air
